The CEO of eBay explains how offering its own shipping service will be a profitable way to fight Amazon (EBAY, AMZN)
- eBay announced Wednesday a new service to handle the shipping of products sold on its marketplace, matching Amazon's fulfillment service.
- eBay CEO Devin Wenig told Business Insider in an interview that the new Managed Delivery service will make it easier and cheaper for merchants to sell goods on eBay's platform. "For our orders there won't be a better price," he said.
- Wenig stressed that the goal is not to compete with Amazon for instant delivery of commodity goods. "We're not trying to get you paper towels in an hour."
- While eBay is partnering with shipping and logistics companies, Wenig says he expects that Managed Delivery will be a profitable business for eBay.
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eBay CEO Devin Wenig unveiled the latest initiative in his battle with Amazon on Wednesday.
The company announced that it will take care of shipping and fulfilment for orders placed on its online marketplace, eliminating the need for merchants who sell on eBay to ship the goods to customers on their own.
The move is aimed at essentially making it as easy to sell products on eBay as it is on Amazon, which has offered its own in-house shipping option for years. And Wenig is betting it will have ripple effects that benefit eBay's business in myriad ways, from faster delivery times to an explosion of eBay-branded boxes.
"If every eBay package showed up in an eBay box there would be millions everyday on people's doorsteps," Wenig told Business Insider in an interview on Wednesday.
Today, it's up to merchants to use eBay's branded boxes — and perhaps as few as 1% do, according to Wenig.
Once eBay takes control of shipping and fulfillment, products will automatically be packaged in its boxes, taking some of the attention away from Amazon's famous smile-logo packages. That will "dramatically change the perception" of the company's brand and help people understand how big eBay's marketplace is, he said.
eBay is partnering with several yet-to-be-announced shipping and logistics companies for its new Managed Delivery service, rather than doing it all in-house.
The new Managed Delivery service, which will launch in the US next year, lets merchants select the option from eBay's existing website for sellers. eBay's partners have warehouses in several regions of the US, so merchants will be able to store inventory of popular products across the country ahead of time, speeding the up the time it takes an order to reach someone's doorstep and reducing shipping costs.
'We're not trying to get you paper towels in an hour'
It's a page out of Amazon's playbook, which relies on a network of distributed warehouses stocked with popular products to cut down on delivery times.
But Wenig said he's not trying to compete with Amazon on instant shipping of commodity products.
"We're not trying to get you paper towels in an hour," Wenig said. "We're not trying to be the instant delivery company."
That means eBay doesn't need to invest a ton of capital to build and operate its own warehouses.
"If you're trying to get every package to everybody in an hour, maybe you need to run a million warehouses. That's not what we're trying to do," Wenig said, citing higher-value products like electronics and fashion as eBay's focus.
While eBay is a distant second to Amazon in the business of electronic commerce, its online marketplace rings up a significant amount of transactions, with roughly 1.5 million products shipped by eBay sellers in the US everyday, according to the company.
eBay processed $21.5 billion in gross merchandise value through its online marketplace during the second quarter, with 1.3 billion products for sale on its site. Wenig estimates that 40% to 50% of those sales could be processed through the new Managed Delivery service.
The service is also open to sellers on other platforms, meaning that a product sold on Amazon's site could arrive in an eBay box, though eBay says that's not the main focus of the service.
For sellers on eBay's marketplace, Wenig says the Managed Delivery service will provide the best price compared to other shipping options, including Amazon's Fulfilled by Amazon service. "For our orders there won't be a better price," he said.
Wenig declined to say whether the low-priced shipping partnerships would be profitable for eBay on a per unit basis, but said the overall initiative is not expected to lose money.
"We're not going to get into the economics of it, but I think we can run this as profitable business," said Wenig.